AA Intermediate Co Ltd Interim Results Nine months to 31 October 2014 16 December 2014 1
AA Intermediate Co Ltd Performance Highlights • Revenue of £736.0m up 1.1% over the nine months • Trading EBITDA 1 of £315.8 million in line with market expectations for the full year • Trading EBITDA margin 42.9% in line with Q2 • Significant cashflow generation with 101.9% cash conversion before tax and exceptional items • 4.0% increase in Income per Personal Member to £129 offsetting 2.4% reduction in Personal Members • 4.0% increase in Business customers due to new contract wins • Motor insurance policies remain stable through Q3, offset by reduction in free Home Emergency policies Increased revenue, Trading EBITDA and margins and strong cash conversion 1 Trading EBITDA (earnings before interest, tax, depreciation and amortisation) excludes exceptional items, share-based payments, acquisition earn-out costs and items not allocated to a business segment. 2
AA Intermediate Co Ltd Trading EBITDA Nine months Nine months Six months • Roadside income increased ended October ended October ended July due to stable retention rates 2014 2013 2014 and increased income per Personal Member Trading EBITDA £m £m £m • Roadside EBITDA margin enhancement from stable call Roadside Assistance 263.7 251.3 176.2 out volumes Insurance Services 61.1 67.2 41.6 • Insurance EBITDA has reduced due to the reduction in motor Driving Services 16.9 14.0 10.7 policies during 2013 and increased marketing costs to Ireland 11.2 11.3 7.1 drive new business volumes • Head Office costs (37.1) (36.0) (23.8) Head office costs include £2.4m of PLC costs – expected to be £8m in a full year Total Trading EBITDA 315.8 307.8 211.8 Net cashflows from operating activities before tax and 321.9 345.3 214.5 exceptional items Cash Conversion 1 101.9% 112.2% 101.3% Trading EBITDA increased to £315.8m 1 Net cashflows from operating activities before tax and exceptional items divided by Trading EBITDA. 3
AA Intermediate Co Ltd Key Performance Indicators 12 months ended 12 months ended 12 months ended Key Performance Indicators October 2014 October 2013 July 14 Personal Members 1 (000s) 3,922 4,019 3,955 Business customers 1 (000s) 8,893 8,551 8,814 Breakdowns attended (million) – last twelve months 3.5 3.6 3.4 Average income per Personal Member (£) 129 124 128 Insurance policy numbers in force 2 (000s) 2,205 2,388 2,222 Insurance income per policy (£) 65 64 66 • Continuing trend of increasing income per Personal Member offsetting reduction in volumes • Stable breakdown volumes in Q3 • Insurance policy reduction due to ceasing Home Emergency free policies, other books all stable • Change in Insurance income per policy due to marginal mix changes Year on year increase in income per Personal Member 1 Reported on a 12 month average basis 2 Excluding business customers 4
AA Intermediate Co Ltd Key Financials – Profit & Loss Nine months ended Nine months ended October 2014 October 2013 • Administrative & marketing £m £m expenses include exceptional items Revenue 736.0 728.1 • Cost of sales (259.1) (258.0) Trading EBITDA 1 is key measure of underlying Gross profit 476.9 470.1 performance Other operating income 0.1 0.2 • Improvement in Trading Administrative & marketing expenses (230.7) (213.3) EBITDA due to increased Share of profit on joint ventures 0.9 - revenue and margins Operating profit 247.2 257.0 • Increase in finance costs due to Trading EBITDA 315.8 307.8 implementation of WBS on 2 Items not allocated to a segment (3.0) (6.5) July 2013 and write off of issue costs due to April 2014 Amortisation and depreciation (34.8) (29.1) refinancing Share-based payments and acquisition earn-out costs (1.0) (1.5) • Exceptional items (29.8) (13.7) Tax credit relates to one-off recognition of deferred tax Operating profit 247.2 257.0 asset, ongoing tax rate c 20% Loss on disposal of subsidiary undertaking - (3.4) Profit on disposal of joint venture - 0.5 Finance costs (171.0) (93.5) Finance income 0.5 0.2 Profit before tax 76.7 160.8 Tax (expense)/credit 7.2 (42.4) Profit for the period 83.9 118.4 Performance in line with market expectations for full year 1 Trading EBITDA (earnings before interest, tax, depreciation and amortisation) excludes exceptional items, share-based payments, acquisition earn-out costs and items not allocated to a business segment. 5
AA Intermediate Co Ltd Key Financials – Balance Sheet October 2014 July 2014 January 2014 October 2013 • Continued maintenance investment in software and £m £m £m £m vehicles Goodwill and other intangible assets 1,250.6 1,249.2 1,245.0 1,239.0 • Reduction of £68m in net debt Property, plant and equipment 107.8 93.0 77.3 78.4 since January due to increase Other non-current assets 66.9 70.5 41.3 46.6 in cash Current assets (exc cash) 1,398.6 1,383.7 1,369.8 1,375.6 • Pension deficit increase due to Current liabilities (490.6) (475.7) (450.7) (482.6) reduction in the corporate bond Net Debt 1 (2,798.2) (2,828.2) (2,866.3) (2,874.1) rate we are required to use as the liability discount rate Finance lease obligations (48.6) (39.4) (20.0) (21.5) Defined benefit pension scheme liabilities (318.9) (266.5) (265.5) (295.6) Other non-current liabilities (17.6) (14.3) (15.9) (23.1) Net liabilities (850.0) (827.7) (885.0) (957.3) Continued reduction in Net Debt to less than £2.8bn 1 Net debt includes the principal amounts outstanding, the fair value of interest rate swaps, interest accrued less cash and cash equivalents and unamortised issue costs. 6
AA Intermediate Co Ltd Key Financials - Cashflow Nine months ended Nine months ended • Working capital in 2013 October 2014 October 2013 benefitted from the changes in £m £m intercompany balances with Acromas prior to the refinancing transaction Trading EBITDA 315.8 307.8 • Substantial exceptional costs Exceptional items (29.8) (13.7) relating to debt refinancing and Other items including investing and tax (33.5) (31.2) restructuring activities 252.5 262.9 Financing activities (127.4) (160.5) Net cash flow 125.1 102.4 Cash as at 31 January 144.7 34.0 Net cash flow 125.1 102.4 269.8 136.4 Working capital 3.2 31.6 Cash as at 31 October 273.0 168.0 Substantial cash reserve of £273m available for debt reduction and business investment 7
AA Intermediate Co Ltd Detailed Cashflow Nine months Nine months ended 31 ended 31 October 2014 October 2013 £m £m Profit before tax 76.7 160.8 Amortisation and depreciation 34.8 29.1 Net finance costs 170.5 93.3 Other items (1.0) 2.7 Working capital movement 3.2 31.6 Net cash flow from operating activities before tax 284.2 317.5 Tax paid (2.1) (7.5) Net cash flow from operating activities 282.1 310.0 Investing activities Software development expenditure (19.4) (10.5) Purchase of property, plant and equipment (6.8) (7.3) Disposal of subsidiaries and joint ventures - (1.2) Proceeds from fixed term investments - restricted - 2.6 Interest received 0.5 0.3 Net cash flow used in investing activities (25.7) (16.1) Financing activities Financing transactions (6.2) 0.1 Interest paid on borrowings (102.1) (21.6) Payment of finance lease capital and interest (19.1) (16.7) Payment to group treasury - (122.3) Net cash flow from financing activities (127.4) (160.5) Net increase in cash and cash equivalents 129.0 133.4 8
AA Intermediate Co Ltd Debt Package (including PIK notes) Principal at Principal at Principal at Principal at Expected Interest Run Rate Cash 31 October 31 July 31 January 31 October maturity date rate Interest 2014 2014 2013 2014 £m £m £m £m £m Senior Term Facility 31-Jan-19 3.98% 26.4 663 663 913 1,413 Class A1 notes 31-Jul-18 4.72% 22.4 475 475 475 475 Class A2 notes 31-Jul-25 6.27% 31.4 500 500 500 500 Class A3 notes 31-Jul-20 4.25% 21.3 500 500 500 - Class A4 notes 31-Jul-19 3.78% 9.5 250 250 - - Class B notes 31-Jul-19 9.50% 62.2 655 655 655 655 PIK notes 1 06-Nov-19 9.50% 33.3 350 350 350 - 6.08% 206.3 3,393 3,393 3,393 3,043 31 October 31 July 31 January 31 October 2014 2014 2014 2013 Class A Net Debt: LTM EBITDA 4.9 5.1 5.3 5.3 Class B Gross Debt: LTM EBITDA 7.2 7.2 7.2 7.4 Total Net Debt including PIK notes : LTM EBITDA 6.8 6.9 7.6 7.0 Improvement in Class A leverage ratio due to cash generation 1 PIK notes are not part of the whole business securitisation and therefore are not included in the financial results of AA Intermediate 9 Co Limited
Appendix AA Intermediate Co Ltd vs AA PLC 10
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